Lesson 4: The Different Types of Forex Analysis

When talking about Forex analysis, you have to learn to differentiate between the different types of analyzes, and understand their peculiarities and complementarities.

There are 3 main types of Forex analysis:

* Technical Analysis, which is basically based on the study of graphs 
* Fundamental Analysis, which studies the macroeconomic context and statistics 
* The Analysis of sentiment, which focuses on the analysis of market psychology

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Technical analysis

Technical analysis is the daily bread of the trader. Some traders use it more than others, but this is an indispensable part of the work of any short-term investor.

The technical analysis starts from the assumption that past behaviors are likely to recur.

More concretely, technical analysis groups together a set of methods for analyzing the graphs and drawing conclusions.

There are two main areas of technical analysis, with graphic analysis, which is directly concerned with gross price movements, and indicators, which are based on the evolution of Prices retreated via mathematical formulas, and presented in the form of independent curves of prices on trading platforms.

For beginners, technical analysis may seem offensive and complicated. It is true that this domain has its own jargon, and that the methods and indicators are counted in hundreds, but as you will see later in this formation, it is knowledge easily assimilable. Moreover, it is in no case necessary to know everything!

Mastering some indicators and techniques is ample enough, as we explain and teach in our Video Training Forex University.

It should also be understood that technical analysis is subject to the phenomenon of "self-realization": If all traders use the same techniques and indicators, everyone sees the same signals, so everyone takes the same positions, And the market goes in the direction described by the analysis ...

It is therefore necessary to avoid originality in terms of technical analysis, and rather to focus on old and widespread techniques and indicators.

Fundamental analysis

The fundamental analysis therefore studies the macroeconomic context to predict the evolution of a currency pair. For example, for the EUR / USD, the economic situation in Europe and the United States will be studied.

To put it simply, a strong US economy should benefit the dollar, and a strong European economy should benefit the Euro, but in the context of currency pairs, it is a comparative study that will have to be realized.

In the case of EUR / USD, the question is: Who in the US economy or the European economy is healthier?

If the European economy is COMPARATIVELY healthier than the US economy, EUR / USD is expected to rise, and vice versa if the US economy is healthier than the European economy.

And to "measure" the economies, there are a lot of economic indicators to monitor each day: Unemployment rate, GDP, confidence indices, manufacturing indices, etc. All these indicators and their publication schedules are listed in the many calendars Economic resources available, of which you will find the best HERE.

There is also a need to differentiate between short-term fundamental analysis, which focuses on "hot" currency pairs responses to statistics, and fundamental mid-long-term analysis, which attempts to depict a background context Which makes it possible to draw longer-term conclusions.

One might therefore think that it is necessary to have solid notions of economy and finance to master the fundamental analysis, but this is not the case. As a trader, you do not have to master all of the macroeconomic concepts but simply know what types of news are likely to impact the market at what time.

And for that, just read the specialized press, like ProfessorForex.com, to get analyzes that tell you what are the "topics of the moment" to watch out for a potential impact on the forex.

How can we combine technical analysis with fundamental analysis?

In daily practice, a trader mainly uses technical analysis. However, fundamental analysis occurs at several levels:

* To know the general background: Macroeconomic background of bearish, bullish or neutral? If the macroeconomic background is bullish, it will be better to look for bullish opportunities, and bear down opportunities if the background context is bearish.

* To know when to publish the news at risk , and to be ready in case of violent movements. You can choose to try to take advantage of potential strong movements, or on the contrary make sure to leave the market during periods of risk.